Monday, April 27, 2009

Here's some interesting speculation I heard about Orbitz's decision last week to trim the fees it charges consumers for hotel bookings.

As you recall, in March Expedia got in Orbitz's face and eliminated consumer-booking fees on flights. That was a body-blow to Orbitz because about half of its profits come from these air-booking fees.

Well, Expedia gets about 19 percent of its profits from the fees Expedia charges consumers for hotel bookings. So, last week Orbitz, which has a much smaller hotel business than does Expedia, reduced its consumer fees for hotel bookings, and Expedia matched.

Orbitz's hotel move could not have been a welcome development in Bellevue, Wash., which is Expedia land, just as Expedia's decision to rescind fees on airline reservations assuredly caused a huge bellyache in Chicago.

Expedia: I'll raise you one airline fee.

Orbitz: I call your airline fee and raise you one hotel fee.

So, here's the speculation: Orbitz might be signaling to Expedia that it should restore its fees on flight bookings.

Expedia, Travelocity and Orbitz all eliminated the flight fees, but on a temporary basis. The fee eliminations run through the end of May, and many people assume they will become permanent.

But, as the signaling theory goes, if Expedia restores its consumer fees on airline bookings, then Orbitz might quietly bring back its hotel fees, perhaps in the second half of the year.

In that way, the potential "revenue death spiral," which is how Forrester Research analyst Henry Harteveldt characterized the OTAs' price wars, might be avoided.

One problem with this theory, however, is that Orbitz sees increasingly its hotel business as a strategic imperative and is about to embark on a marketing campaign related to its fee cuts on hotels and its related "total price" initiative.

But, let's see what happens around June 1, when all of the OTAs' airline-fee promotions end.

If the flight fees are restored and Expedia leads the way, maybe the travel-industry wag who speculated about this scenario is correct and someone at Expedia understood Orbitz's distress call.

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I've followed online travel, its twists, turns and detours, since the beginning (not Adam and Eve, but Rich and Terry), and will follow the aforesaid in this blog. I'm North America editor of Tnooz and I write USA Today's Digital Traveler column. Things not in my resume: I visited Orbitz headquarters pre-launch in 2000 and, left unattended, eavesdropped and examined the whiteboards to learn partnership details; Travelocity's ex-CEO Michelle Peluso credits me with her success (Wharton notwithstanding) after I wrote a sentence (with accompanying photo) mentioning that some of her Site59 women wore fishnet stockings and then airline execs kept the phone lines busy; I once drove to tiny Sherman, Conn., to see where PhoCusWright lives; and I was a nachtportier in a West Berlin hotel in the days (Btw) when a nasty wall split the city. Fyi, the previous stuff wasn't necessarily in chronological order.

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The opinions I express in the Dennis Schaal Blog are my own. Only I could think of this stuff. The opinions uttered or written here in no way reflect on the views of past employers, current partners, future associations (how could they anyway?) or my first-grade teacher, Mrs. Slayton. I don't have a lawyer, but if I had one, he or she probably would have told me to write something like this. Well, maybe not exactly. The Dennis Schaal Blog is Copyright (c) 2009 by Dennis Schaal. All rights reserved.